THE CASE AGAINST CANADIAN DRUG RE-IMPORTATION

THE CASE AGAINST CANADIAN DRUG
RE-IMPORTATION
by Timothy Rollins, Editor and Publisher

The funny thing in all the hysteria of the campaign this year is that John Kerry, John Edwards and all their liberal idiot friends have been extolling the virtues of re-importing cheaper drugs from Canada (flag, right). Clearly, this is but another scare tactic designed to prey on perhaps one of America's most vulnerable elements of society - the elderly. People who prey on others are justifiably called predators. Yet "Botox Boy" - who wants be America's gigolo-in-chief - fails to realize this is a much deeper issue than just a bunch of hollow rhetoric at a campaign stop before he, Edwards and their wives go off to dine on lobster and shrimp away from the dirty masses they claim to champion.

Living with a disability myself, I live on a limited income - and no - I DO NOT feel sorry for myself in the least, although most liberal Democrats would want me to believe they could make me better from the serious illness and catastrophic injuries that have prevented me from regaining the robust health I once enjoyed. This is not unlike John Kerry seeking to gain mileage from the recent death of actor Christopher Reeve by having the stones to suggest that if he (Kerry) were president, that Reeve would still be alive. Unless Kerry is an M.D. specializing in stem cell research and rehabilitative medicine, Kerry has once again shown us that he's full of crap, but then again, what else is new?

Having lived in Canada, I see both sides of the Canadian drug re-importation issue. Re-importing U.S. drugs from Canada back into the United States must not be allowed for a number of reasons. Allow me to explain. The major drug companies, AstraZeneca, Bayer Corporation, Bristol Myers Squibb, Chiron (in the news lately), GlaxoSmithKline, Johnson & Johnson, Pfizer and the others - both major and minor players - are in the business for two reasons: first, to (1) save lives through life-saving medications; and (2) to make a return to investors. After all, businesses that fail to make money don't stay in business.

I have a couple of doctor friends in Canada. Both have private practices; one spends about 70 percent of his time with his practice and about 30 percent of his professional time working for the other doctor, who divides his time 30/70, with 70 percent of that doctor's time involved in research work. Research and development (R&D) is time-consuming and very expensive, with time trials and development of new medications taking as long as 15-20 years and often costing over 1 billion dollars. This is one of the reasons why the patent - once issued - is good for 20 years before the competition can make a generic version of the drug for themselves and get their own piece of the action. The patent's exclusivity allows them to recover their R&D costs and to invest some of that money into development of new medications while returning some of that money to investors/stockholders.

Drugs are shipped in bulk from the United States to Canada at lower prices pursuant to price controls imposed by the Canadian government. Those price controls are negotiated between the Canadian government and the drug manufacturers, and to sell en masse to U.S. customers is to undermine that agreement, which could backfire in more ways than one with staggering consequences for everyone.

Drug companies could cut back shipments to Canada if this got out of hand; Canada could then retaliate and void the Canadian patent on the drug and have their own chemists break down the drug and make their own generics, thus undermining the ability of the manufacturer to recoup their R&D costs.

Small wonder than that an Investor's Business Daily cover story on October 19th indicated the Canadians are clamping down, fearing possible legitimate shortages for Canadians. No wonder there, given that our senior population alone is one-and-a-half times larger than their total population. The article said, "Last year, Pfizer, GlaxoSmithKline and AstraZeneca said they would not sell to Canadian pharmacies that also sell in the U.S."

The only organizations in the United States permitted to buy pharmaceuticals in bulk from the manufacturers are military - the Department of Defense and the Department of Veterans Affairs. Given their patient load, it's understandable. Most Americans - including retired ones - have a health plan, to include prescription drug coverage, and for the ones who don't, prescription drug coverage becomes part of Medicare in 2006.

Now if only John Kerry could come up with a practical idea, it just might scare all of us… ***

COPYRIGHT © 2004 BY THE AMERICAN PARTISAN
All writers retain rights to their work.

Those price controls are negotiated between the Canadian government and the drug manufacturers, and to sell en masse to U.S. customers is to undermine that agreement, which could backfire in more ways than one with staggering consequences for everyone.

For exactly this reason, the Republican controlled Congress should pass this legislation and insure that the Democrats get full credit.

It had the additional advantage of rewarding our neighbor to the North for their outstanding support with Iraq.

Actually, I would like to see cross-border sales legalized anyway. Its not our place to protect Canada's discount by law.

The discount only exists because the US market next door picks up the difference between what Canada pays and what it would have paid otherwise. Canada's discount is an American subsidy, in other words.

Legalize cross-border sales, and one of two things will happen; Canada will prohibit them in order to protect their discount (and it looks to me like that is what they are already going to do). Or else they will simply lose their discount. The drug companies are not going to continue to sell to them at a discount if it undercuts US sales.

The Canadian threat to void the patents is an empty threat. Canada can not afford a commercial war with the US, and they can't afford to attack the patent system. They will back down the easy way or the hard way. Either way, it would be a valuable lesson in economics for them.

He's right that if we allow re-imporation of the drugs then the manufactures will take action. Either they'll restrict the amount they sell to Canada, so that there isn't too much left for re-importation at the lower price, or they'll have to raise the price the Canadians are paying until some sort of equilibrium is obtained between the Canadian and US price. It looks to me like Canada would end up having to pay their share of the development costs, which would be good for the US customers. You'd hope if Canada was paying more we would end up paying less. I can see why Canada wouldn't be too happy about loosing their free lunch. They might ever impose their own restrictions on reselling to the US just to keep things as they are.

The more direct solution to this problem would be to grab pharmaceutical executives by the throat and shake them until they agree to sell drugs at one price, and not give discounts to anyone. But, since that is not practical or legal, we should just allow unlimited re-importation, until these bean-counters figure out that they have to charge the same price.

I would be delighted if Canada tried to void a patent. I suspect that it would cost them so much to prove out their fake drugs that the project would end quickly.

But, since that is not practical or legal, we should just allow unlimited re-importation, until these bean-counters figure out that they have to charge the same price.

While we're at it, why don't we mandate that the airlines charge the same price for every ticket instead of discounting certain flight times or ticketing arrangements. And let's tell movie theaters that they can't charge a lower price to senior citizens or students than for everyone else. And those early matinee discounts have to go too.

Price discrimination is NOT a bad thing like you seem to believe it is. You see, there is such a thing as differentiated markets. In the case of the Canadian market, the market price is artificially deflated by price controls but a firm can still profitably sell there as long as the marginal revenue from those sales exceeds the marginal cost of producing the goods sold. As a result of differentiated markets and price discrimination, the firm can profitably sell in both markets. If the differentiation of the markets is eliminated (reimportation) then market forces will drive the price down in the US market, making those sales less profitable and possibly making sales in the other market unprofitable. The firm will reduce production and will cut sales in both markets as a result. Price controls inevitably lead to shortages.

"The discount only exists because the US market next door picks up the difference between what Canada pays and what it would have paid otherwise. Canada's discount is an American subsidy, in other words."

Not quite the entire story. It is fairly normal for a huge buyer to get a discount from a manufacturer, and in this case the buyer is the Canadian govt. It sells the products to the distributors or drug outlets NOT just at a
discounted price, but at a government-subsidized price.

The consumer benefits not only from the original discount but from the subsidy the Canadian govt provides in order to keep the drug at a certain government-determined price level. These "cheap" drugs are paid for, naturally, via the tax system. And even then, those subsidies do not apply to all drugs. The Canadian govt likes generics, and many brand-names get shaved off the subsidy list from time to time.

case the buyer is the Canadian govt. It sells the products to the distributors or drug outlets NOT just at a discounted price, but at a government-subsidized price.

Then, if part of the discount is a Canadian subsidy, if we legalize cross-border sales, they will have to outlaw them. They can afford to pick up the tab for the occasional American driving across to fill a presciption, but anything more than that would force them to act.

And, actually, I have seen in the press in recent days that they are moving to outlaw it, if I am not mistaken.

Which is fine with me.

The threat to void the patent is NOT an empty one. It has been done before in the past. Although Canada does not want to do it again, there is past precedent for this action; however, given the sorry state of current U.S.-Canadian relations that got that way under now-former (thank God!) Prime Minister Jean Chretien, the Canadians don't want to risk p***ing us off!

Price discrimination is NOT a bad thing like you seem to believe it is. You see, there is such a thing as differentiated markets...

In some cases, price differentiation can be a good thing. Unfortunately, the drug situation involves price differentiation by government fiat. And that is generally a bad thing.

What allowing re-importation would do would be to curtail the Canadian government's power to demand a lower price without sacrificing availability. I don't know exactly how the Canadian government would react--most likely by imposing restrictions on export--but I see no reason for the U.S. government not to put the ball in their court.

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